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Multiple Investment Advisers Sanctioned for Passing Along False Performance Claims of Another Adviser

Thirteen investment advisers settled charges brought by the Securities and Exchange Commission for fines of between US $100,000 and US $500,000, for passing along to their advisory clients false performance data provided by another independent investment advisor. According to the SEC, each of the 13 advisers used performance data provided by F-Squared Investments, Inc., formerly registered with the SEC as an investment adviser from March 2009 through January 2013, to solicit investors for managed trading programs based on F-Squared’s AlphaSector index. However, said the SEC, the performance data provided by F-Squared was false in that, among other things, it claimed it was based on real client performance, when it was not, and the performance results were “substantially overstated.” The SEC charged that none of the 13 advisers took adequate steps to evaluate the legitimacy of F-Squared’s performance claims. The SEC charged each of the 13 advisers with failing to make and keep records necessary to demonstrate the calculation of performance or rate of return it provided to 10 or more persons, as well as distributing advertisements that were false and misleading. In January 2015, the SEC filed and settled charges against F-Squared, claiming it defrauded investors by falsely advertising a successful seven-year track record for its core investment strategy, reflecting actual investments for actual customers, when performance data was actually “materially inflated and hypothetical.” The firm agreed to pay US $35 million to resolves these charges. Separately, Howard Present, the firm’s cofounder and former chief executive officer, was also sued by the SEC for this matter; this matter is still pending. (Click here for details of these SEC enforcement actions in the article, “Investment Company and Former CEO Charged With Defrauding Investors Related to Sale of Index Products Using ETFs; Firm Settles by Payment of US $35 Million” in the January 4, 2015 edition of Bridging the Week.)

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